Reader Mailbag: Debts and Exercise

My husband and I are currently a two-car family looking to make the transition to one car for awhile. My husband will be telecommuting for work at least through the end of the year (we are moving to a different state where he will continue to work for his current company). Our new city will also have significantly better public transportation options (the Twin Cities area). We own his car (2004 Chevy Malibu with about 75,000 miles on it) and have $7,000 left on the loan for my 2006 Chevy Malibu Maxx (45,000ish miles) with 6.8% interest. We will pay this off before the end of the year.

Our question is, does it make sense to sell his car? If he switches jobs around a year from now we might need to purchase another vehicle, depending on where it is located. If we don’t sell it, it will just sit in the garage.
– Ashley

Congratulations on moving to the Twin Cities? I live just a couple hours south of there and I really enjoy visiting there (my wife has family in the outer edges of the metro area).

When you say “switches jobs around a year from now,” I’m assuming you’re referring to the move to the Twin Cities and not leaving his current company. If that’s the case, I would sell the car. Then, when you move to the Twin Cities, I would give public transportation a genuine shot before jumping on board buying a replacement car.

Once you move, it may make sense also to carpool. I’m not sure what you’re doing in terms of work, but if you can both get into carpools at your work on different days, you may be able to both use the car for commuting. Of course, you might be staying at home, too – it’s unclear from the email.

Anyway, I don’t believe you’ll necessarily need the car when you move and if you don’t need it now, I would sell it. Even with leaving it in your garage, you may have to maintain a minimal insurance on it (depending on laws in your state), and if there’s a good likelihood you won’t need it again, I’d sell it.

Given all the uncertainty in today’s economy, what methods do you use to keep fear from creeping into your financial decision-making process? Is there any such thing as “healthy” fear?
– Jesse

The biggest thing that I do to keep fear from creeping up on me is I ignore fear peddlers. I don’t waste my time listening to or thinking about people who try to make me afraid of the future. For one, those people are usually salesman in some regard, trying to sell you books or magazines or gold investments or long-term food products, so they have a personal economic interest in making you afraid. For another, you can still get the facts you need without the fear by acquiring your information from a variety of sources. This eliminates the salesmanship and political angles (or at least neutralizes them).

There are some things people should always do to ensure a secure future. A healthy emergency fund – at least a few months’ worth of emergency expenses in cash – is one. A well-rounded set of transferable skills is another. Those things should be done in strong economic times or poor ones.

Just take a critical eye to the reasons you’re afraid. Who’s delivering those reasons to you? Is it a person or business that has financial incentive to make you afraid? Often, it is.

I am a 23 year old female college graduate. I graduated with a degree in mathematical science. When I first graduated last May, I had an extremely hard time landing myself a job because of the economy. Finally, I found a position doing A/P work (although I was over-qualified) in a corporate HVAC office. I do not like my pay and continued my side jobs with tutoring and waitressing to help cover my college credit card debt. An old boss offered me a position to replace his current office manager making $10G more a year of my current salary. His office is a private, family owned company. I accepted the offer. What an exciting challenge I thought to myself, to be 23 and offered such a high position! When I handed in my letter of resignation, my current job matched the offer. Both parties said they see a lot of potential in me. It was honestly, one of the nicest (yet hardest) compliments I have ever received.

Now, here is my big decision: do I go corporate? or private? The big advantage of the private position is that he is willing to match a 401K and the corporate position does not. Other than that, all offers on the table are the exact. Should I allow these two factors (an old boss, and a 401K) to sway my decision?
– Erin

I think the factors you should care about don’t have to do with compensation at all. I would go for the position that puts you in the best long-term situation for your career.

Since I don’t know about your career or the two positions in any detail, my suggestion would be to find someone in your field that you trust – maybe an old professor or something like that – and have a long conversation where you lay all of the details down. You want to choose the one that will give you the best platform for a great career for a long time.

My feeling would be that the office manager job would probably fill that requirement better. When you leave your current job, make that reasoning very clear. They may just suddenly promote you to something better to keep you – it sounds like you’re valued there. There is nothing wrong with both companies trying to get you / retain you and competing over you a bit.

Put yourself where you need to be for the long term.

I just read your archive post about making breakfast burritos in bulk. I love the idea and look forward to trying this.

I’m just wondering how long will the burritos “keep” in the freezer. One week? Two weeks?

I’d appreciate any advice you may have about this.
– Maya

I have made that burrito recipe (or variations on it) many times, along with other “convenience foods in the freezer.” Each time, I either wrap them individually in Saran Wrap or freezer bags.

In my experience, the items are usually good for a couple of months and edible after that if you haven’t finished them off.

There are two big keys, though. First, package them as well as you can. Make sure they’re minimally exposed to the conditions of your freezer. Second, when you cook them later, wrap them in a paper towel or a hand towel when cooking so that you don’t lose retained, frozen moisture to the microwave. These two things will make all the difference in the world.

You mentioned you’ve started using EA Active instead of Wii Fit for simple exercising on your Wii. How is it working for you?
– Billy

I use them both, actually.

I find Wii Fit to be more fun, but provides less actual exercise. The games in Wii Fit are more enjoyable than the other game and there’s much more of a sense of trying to beat your high score while also moving around quite a bit.

On the other hand, EA Active provides a much better workout, but doesn’t have as much of a “fun” factor. I can actually get sore with EA Active (provided one replaces the elastic band the game comes with with a band with much more resistance or with wrist weights) and the exercises are enjoyable and clear, even if they’re not as “fun” as Wii Fit. My one complaint is that the leg band with EA Active slips like crazy. I fixed this by wearing cargo shorts when I do it and just putting the nunchuk in a pocket.

I play them both a few times a week. I can actually get sore from EA Active but I usually have more fun trying to beat high scores on Wii Fit.

Long story short – my husband is on a 10-year payment schedule for about $130K in student loans from undergraduate and law school. The bulk of his income goes to those loan payments, leaving us enough to pay utilities bills, groceries and such. But we also have a combined credit card debt balance of close to $10K.

The issue is this: We’re obviously not leaving enough money at the end of each month to aggressively pay down our cards and start a real savings account. As of now, we usualy keep a few hundred dollars in our joint savings, but that’s it. I want us to readjust my husband’s student loan repayment schedule to 15 or 20 years so that we’ll have more money to pay off the cards and build a savings NOW (with the possiblity of putting more into his loans LATER). He argues that paying off the student loan debt sooner will be better in the long run beacuse we’d save tens of thousands of dollars on interest.

It’s a discussion that comes up every few months with no solution or agreement on how to handle this. Sure it’s great to pay down debt, but are we paying off the wrong kind of debt? Shouldn’t we extend the student loan payments in order to pay down the credit cards and start saving for unforseables and other investments (namely a home)???
– Lauren

The obvious answer here is to tell you to re-evaluate your spending and look for some ways to spend less, because that’s the best method you have for improving your situation.

Beyond that, though, I think it’s reasonable to take a look at extending his loans, depending on what the interest rates on the various loan options are. If the loan extension causes the interest rates on the loans to jump up, it’s not a good idea to extend them, even if it reduces your monthly payments by a little bit.

I’d probably say your best plan would be to throw your credit cards in a blender and live without them for a while. Use your debit card (as a credit card, of course) for purchases.

Is it better to pay one extra principal payment a year or pay half your mortgage twice a month? I paid our typical payment Feb 1st, but then paid half of our normal payment on Feb 15th and will continue paying half on the 1st and 15th…

I know I am ahead by approximately half of the principal now and will make up the rest on each payment a little at a time. I just thought it would be better because it drops down the principal every month which would mean less interest.
– Krissy

Many people argue that it’s better to pay half of the mortgage payment early in the month. On paper, that can make sense, but it only makes sense if your lender is compounding interest daily (rarely) or using a daily average to calculate the interest on a monthly basis (much more likely). If they are truly just compounding the interest monthly based on the balance at the end of that month, it won’t help a bit.

Thus, your first step is to either read through your mortgage or call your lender to find out how the monthly interest is calculated. Many lenders do a daily average with monthly compounding, which means they calculate the balance of your mortgage each day over the course of a month, add them all up, then divide by the number of days in the month. If you get a half-payment in early, you reduce the balance of your mortgage for half of those days, thus reducing the calculated interest at the end of the month.

You just need to know how your lender calculates these things. Once you find that out, you’ll quickly be able to figure out whether an early payment will help you out.

I am going to be voluntarily jobless for the next 3 months without much income (oddjobs and part time stuff here and there but nothing substantial). I have 2 credit cards with about $1000 on each and one with $2000, would it be better to pull out my money from my retirement (Im 25, its not much, but after taxes it would be right at 2k) and pay off the 2 cards, or leave the money in the bank and just make payments slightly above the minumum?
– Will

I would leave the money in the account and make minimum payments on the credit cards for these jobless months.

For one, you’re suggesting pulling money out of retirement to pay off debts. The only time you should take money out of retirement is when you’re legally allowed to pay it back or you’re absolutely forced to do it. Neither case is on the table here.

For another, if you use that money now for credit card debt, it will not be there when you’re actually in a situation where you genuinely need it, and it won’t be there for retirement, either. Since I’m not sure what “voluntarily jobless” means – do you actually have a job lined up in a few months? – I would be very hesitant to take out that money.

I’m a 26 year old reader, I’ve been reading since 2006. I saw this story on Huffington Post and it blew my mind. If she is the poster child for a “broken system that needs to be corrected” they need to pick their stories better. It kind of made me want to pull my hair out, and, for some reason, I’ve chosen to give you that same frustration by linking the story below, haha. Overview- she chose to go to Tulane instead of a local state school that would have “basically paid me to go there”, and now she’s complaining because she’s racked up 100,000 in debt on an English degree and traveling abroad. Le sigh…

At her current stage in life, she’s very worried about money. Looking back, she can see a lot of situations where she made choices that were very poor in terms of the immediate financial consequence, such as going to Tulane and studying abroad. She regrets it, because her current concern (money) is now the focus.

At the earlier stage, her focus was not on money, but on receiving the best education she could get. She made choices solely with that in mind and it sounds like, even today, she recognizes that she receives value from it.

The problem is that today, with her new realization that money is a scarce resource, she’s faced with choices that she doesn’t like. It’s now time to pay for that education.

There is absolutely no point in looking back at the past and getting angry with yourself over the choices you made. It’s a waste of time. Instead, you need to look at where you are now and ask yourself what choices you can make today – and tomorrow – to put yourself in a better position in the future.

Today isn’t the day to sit back and whine. Today is the day to step up and take action.

My wife and I are 26 years old and we are getting about $3k in tax refunds and work bonuses this year. We’re trying to decide how best to use it.

We have no credit card debt just paid them off, over $7k […]! We have about $17k in student loans at 3.5%. Mortgage of about $195k at 6.5%. Unfortunately not yet able to refinance as yes we were prior to the housing collapse in a 0% down 30 year mortgage (but can’t fix that now). We’d need to get to about $165k to avoid PMI and potentially refinance. Emergency fund currently at $2k. We spend about $4k a month in expenses so would love to get the emergency fund above $10k should one of us lose our jobs (very low chance but possible in this economy). I have a 401K with about $27k in it. My wife has no retirement savings.

The question is do we use the $3k to start a Vanguard Roth IRA, do we put it toward mortgage principal, or do we add it to our emergency savings? We have other online savings accounts setup to pull money towards our short-term goals of trip to Europe, building a fence, having kids, etc. Long-term goals (3+ years) would be new house to support a family (currently 2 bedroom house), one or both of us back to graduate school, new car for my wife, etc.

My thought is start a Roth IRA, I’ve been talking about it forever and this is a good opportunity to start with $3k to avoid fees with Vanguard and start a Target age fund. Then we scrape to reduce the mortgage as it has the highest interest rate and work to get rid of the PMI as soon as we can and build equity in the house we plan to sell in 5-7 years. We then can also funnel a higher percentage of pay to the emergency fund as there is some room with the credit cards now paid off to do that.
– Jay

I think there are valid arguments for a lot of different ways you could spend your money here. You make the case yourself for the Roth IRA. There’s also a good argument for putting the money towards your mortgage, since it’s your highest interest remaining debt and you’re thinking about upgrading in the future. There’s also a good argument for simply supplementing your emergency fund.

I would step back and look at your situation more deeply. What would you do if you lost your job? Do you have resources to help you manage that situation well? What if one of you got sick and had to go on an extended FMLA leave?

This pushes you either toward the emergency fund or the Roth, I know, which is where I would go.

Since Roth saving is for long-term saving, I think what I would do is take the $3,000, put it in my emergency fund for now, and then keep trying to fund it to build it even bigger. At the end of the year, I would look at my emergency fund and ask myself how much of it I could reasonably afford to put into a Roth IRA without putting myself at risk.

Good luck!

Got any questions? Ask them in the comments and I’ll try to include them in a future reader mailbag.

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